Stabilisation and Industry Evolution
One of the most significant developments of 2024 was the stabilisation of adviser numbers after years of decline. This stabilisation not only indicates a more positive outlook for the profession but also suggests a potential growth in adviser numbers as we close out the year. The proportion of advisers planning to leave the industry fell to 7% from 10% in 2022, and those intending to stay increased to 85% from 78%. This shift in intentions is a clear sign of the industry's resilience and potential for growth.
This stability has provided a foundation for growth, with consumer search tools like Adviser Ratings reporting a 36% increase in client leads. More notably, 24% of unadvised consumers now express interest in obtaining financial advice, up from 22% last year. Overall, 2024 demonstrates the growing trust and demand for professional financial advice services, which is a positive message given the general experiences of the profession seen since the Royal Commission.
Regulatory Reform
The Federal Government's legislation of, and announcements relating to upcoming tranches of the Delivering Better Financial Outcomes reforms brought welcome clarity and a sense of optimism to the profession. While the legislation of DBFO Tranche 1 brought welcome relief through simplifying ongoing fee documentation, the key changes for the profession are expected to be legislated in 2025. The recently announced intention for Tranche 2 will now include a modernised best-interest duty, the simplification of advice documentation and expanded provisions for financial products to provide straightforward advice to existing customers.
This level of regulatory change needs support, and the changing demographics of advice licensees will impact implementation. Most advisers (82%) noted that they still rely on their licensees to manage regulatory change compliance. Given the changing licensing landscape with a growing dominance of self-licensed practices, advisers may need to rethink where they turn for assistance. The 2024 Landscape Report found that many self-licensed practices (45%) self-manage regulatory change rather than engaging external experts. With the imminent implementation of principles-based advice records, where there is an opportunity to take a blank canvas approach to create a more flexible and client-centric advice document, it will be interesting to see where the main drivers of innovation in this space develop from - practices implementing alone, or those using external experts for assistance. This implementation could potentially reshape the industry's approach to client-centric advice and innovation.
The Rise of Super Firms and Business Models
Perhaps the most notable trend of 2024 was the emergence of "super firms." In the past, financial products dominated the business page stories about corporate transactions and ownership changes; then, it was the turn of licensees. In 2024, it was confirmed that financial advice practices are now considered the most valuable asset in the financial services industry. No further proof is required than AZ NGA's purchase of 16 AMP practices for $82.2M versus Entireti's purchase of the once-dominant AMP licenses for $10.2M, all while we saw one of the nation's most prominent platforms unable to find a new owner.
More broadly, the rise of 'super firms' presents challenges and opportunities for the profession. These are practices that now achieve profit margins exceeding 40% while increasing revenue by more than 15% year-on-year. They are often specialist advisers, commanding higher fees and managing more considerable funds per client. However, the growth of boutique, privately owned practices also reflects a shift toward smaller, more personalised practice models. While the rise of 'super firms' presents opportunities for increased profitability and client management, it also provides a blueprint for smaller practices to thrive in this changing landscape. By learning from the strategies and business models of 'super firms', smaller practices can adapt and find their niche in the profession.
One of the significant drivers improving business outcomes for super firms is data analytics, which is increasingly being employed to enhance service delivery, improve client outcomes and drive efficiencies, highlighting the growing importance of a data-driven approach. These trends suggest a clear correlation between proactive adaptation to regulatory change and improved practice performance. This use of data leads to a difference in business planning. While 73% of practices have a business plan, only 32% have one updated for the new regulatory environment, suggesting that many still need to catch up in their readiness.
As noted, the stabilisation of adviser numbers more broadly has also been seen as a stabilisation across many practices in 2024. On the one hand, practices have taken a more cautious and strategic approach to growth in 2024, compared to more aggressive growth strategies in the previous years, while waiting for regulatory and technology changes to flow through. However, the super firms have yet to stand still. They are focused on improving efficiency to grow practice revenue and profitability rather than through increased capacity and the required lag or capital investment adding advisers requires. This efficiency-focused strategy is further evidence that firms are responding strategically to significant changes within the market as they become more confident in their positioning for the future. This trend of maintaining stable staffing is even stronger amongst practices leveraging technology to enhance profitability and efficiency.
Technology and Innovation
The adoption of technology defined successful practices in 2024, with 45% of practices using or planning to use AI, while 64% implemented digital applications for efficiency gains. Tech-savvy practices operated with 55% fewer staff while maintaining high service standards. Managed accounts gained significant traction, though this trend sparked important discussions about potential conflicts of interest and fee arrangements.
While full integration of AI tools is still being explored, practices embracing AI started to benefit from streamlined operations, reduced costs, and enhanced adviser-client interactions, particularly in advice meeting delivery and recording.
Cybersecurity and Data Privacy
However, the shift to technology and innovation leads to a need to consider cybersecurity and data privacy for Australian financial advice practices. The reliance on technology and data analytics has increased vulnerabilities to cyber threats and data breaches.
Leading practices actively invest in sophisticated cybersecurity solutions and implement rigorous data protection protocols to safeguard client information and comply with regulatory requirements. This investment includes technological safeguards, staff training, policy updates, and regular audits to identify and mitigate potential risks. Despite the cost, there is a direct correlation between this investment and higher revenue and profit margins, with practices showing an active approach to cyber security reporting better results across all key metrics.
Despite these proactive measures, cyber threats continue evolving, leading to a growing demand for cybersecurity expertise within financial advice. Many practices are working with external specialists to enhance their cyber security capabilities and ensure client data protection.
Practices are also increasingly focused on data governance, ensuring compliance with regulatory guidelines and data security legislation. The emphasis on protecting client data is creating a higher level of trust amongst consumers and further establishing the value of financial advisers in managing personal finances, as well as improving practice efficiency through improved data flows and less manual movement of data through the advice process.
The Changing Role of Paraplanners
Another impact of the shift in the use of technology is a dramatic transformation impacting the role of paraplanners in 2024 with a significantly reduced demand for traditional paraplanner roles, leading to a notable decrease in the number of paraplanners employed by practices across the board. The 2024 Australian Financial Advice Landscape Report highlighted that practices implementing technology are significantly more likely to experience a reduction in paraplanner numbers compared to those that do not utilise technology, reflecting a shift towards technology-driven efficiency and process streamlining.
However, this doesn't signal the end of the paraplanner role. Instead, the skillset required for paraplanners is rapidly evolving. Today's successful paraplanners need advanced technical skills, especially in using and interpreting data analytics, working with AI-powered tools, and managing digital workflows.
Client Engagement and Service Evolution
Practices, as they have shed the old large licensee models, have moved beyond annual check-ins to more client-centric, regular, meaningful conversations about topics of immediate concern with their clients. The ongoing cost-of-living crisis dominated these discussions, with rising inflation and housing costs driving more Australians to seek financial advice. Practices also enhanced their service delivery through the continued adoption of new digital tools, which helped clients visualise their goals and understand the impact of different scenarios, assisting in breaking down the barriers between advisers and clients.
Product Trends and Consumer Preferences
Investment strategies saw notable changes in 2024, with a continued shift toward passive management and ETFs. ESG investing gained momentum, with 54% of consumers considering ESG factors in their investment decisions, up from 39% the previous year.
The life insurance sector also underwent significant changes in 2024. Through the new Council of Australian Life Insurers (CALI), the industry had a more focused and collaborative approach to building trust with Australians and their advisers. The insurers addressed underinsurance through initiatives designed to bridge coverage gaps, relabel premium types to improve consumers' understanding of premium behaviour, and proactively worked with the Government to legislate the banning of genetic test results being used in underwriting. While the industry still needs to undertake significant data transformation to reshape and improve product offerings, positive steps are being taken to strengthen the insurer-adviser-client dynamics.
Professional Development and Industry Recognition
The importance of continuous learning and industry engagement emerged as a key theme in 2024. Leading practices created comprehensive learning environments combining formal education, peer learning, and industry engagement. This, in turn, played a crucial role in lifting standards, improving the alignment of product selection to client strategy, and evolving the services provided by advisers to the needs of their clients.
Looking Ahead
As we move into 2025, the Australian financial advice profession appears poised for continued evolution and growth. The reforms introduced by the Government in 2024 are setting the stage for a more efficient and accessible advice profession. With the opportunities DBFO Tranche 2 will provide for generational evolution in advice delivery through innovation, collaboration, and technology adoption, the profession enters the new year with cautious optimism and further opportunities for significant growth in client numbers and revenue for practices willing to think differently. The challenge ahead lies in maintaining this momentum while ensuring advice remains accessible to more Australians, particularly as practices navigate rising costs and evolving client needs.
Join Angus Woods and Benjamin Marshan on Monday, December 16 at 12 Noon as they discuss everything that happened in 2024 across the financial advice profession and the broader financial services industry. Find out where we are and where we are going in 2025. Sign up to the LinkedIn Live below:
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